Safeway(SWY) shareholders are expected to receive $40 per share. That values the deal at more than $9 billion. Shares of Safeway fell more than 3% in after-hours trading.

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Bob Miller will become the executive chairman, while Robert Edwards, Safeway's current president and CEO, will become president and CEO of the combined company.

The merger comes at a time when traditional supermarkets have been struggling to compete with the larger chains like Costco(COST) and Wal-Mart(WMT). Those rivals are willing to take lower profit margins because they know food drives people into their stores, Perkins said.